Learning how to manage your books can be daunting when you’re just starting a new business and navigating the world of self-employment.
In time you might choose to hire an accountant, but here’s an overview of what bookkeeping is, and our tips for getting it right.
Bookkeeping is an important part of business finance, but is often one of the most challenging parts of running your own business.
You probably didn’t choose to go self-employed because you enjoy looking at spreadsheets and recording your expenses. You're happiest when you’re out there doing what you do best, whether that’s running your craft business, selling clothes online, or providing a first-rate service to your customers.
Bookkeepers are required to keep an accurate record of business costs and expenses. Not only does this help with understanding the profitability of a business, but it’s necessary when it comes to filing your tax return as part of the Self Assessment process each year.
Accounting and bookkeeping are two terms that often get confused in business finance as they can overlap.
Bookkeeping is the day-to-day administration tasks that keep track of the money your business receives and the money it spends.
Accounting is a high-level form of business finance as it looks at the financial health of a business through reports and forecasts.
Accounting tasks usually include auditing, analysis, and financial reporting, for example creating a balance sheet to report on assets and liabilities or doing a cash flow forecast. These reports provide a more analytical view of your business and can be useful when it comes to making important business decisions.
Not sure where to start when it comes to balancing your books? Here are our five top tips.
First, you’ll need to choose an accounting method for your business: cash basis accounting or traditional accounting. What’s best for your business will depend on how you’ve set it up, so it’s best to talk to an accountant if you’re unsure.
The size of your business will probably determine how you want to organise your financial admin. There are many different free and paid for accounting software options out there, but you might be happy with a simple Excel spreadsheet.
The main thing is that everything is organised and you’re filing your invoices, bank statements, and receipts in order.
You need to keep your business records for at least five years after the Self Assessment deadline. Limited companies need to keep accounting records for at least six years. Our guide to record keeping has more details on this.
You can subtract some of your self-employed expenses from your turnover when working out how much tax you’ll need to pay each year. Make sure you’re not one of the small businesses that are losing thousands on unclaimed business expenses, whether that’s due to losing receipts or not understanding what you can and can’t claim.
It can be tricky to know how much tax you’ll owe HMRC by the time the Self Assessment deadline comes around on 31 January, but it’s important you’ve budgeted enough money to pay the bill.
If it’s your first year in business, be aware that you’ll have to pay that years’ tax bill and then, on the same day, also pay the first instalment of the next year’s bill – this is called payment on account.
If you’re struggling with bookkeeping, it’s worth considering whether you want to hire an accountant and free up your time for running your business.
Alternatively, you could explore basic bookkeeping qualifications like this one at City & Guilds to build your knowledge.
If you’re looking to improve your confidence and develop your bookkeeping skills, we’ve listed a few online bookkeeping courses you can try for free. It’s also worth seeing if you can access any free resources with your bookkeeping software (if you use one) as some do include training and support.
OpenLearn is a free learning platform from the Open University and they offer an Introduction to Bookkeeping and Accounting for free.
FutureLearn offers a range of free accounting courses that you can complete in your own time from anywhere in the world. Here’s a few related to bookkeeping:
Finally, it goes without saying that YouTube is a fantastic way to teach yourself something new – and bookkeeping is no different. Have a browse and let us know how you get on.
Do you have any unanswered questions on bookkeeping? Let us know in the comments.
Photograph 1: Fizkes/stock.adobe.com
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